James Jones
Experian’s Head of Consumer Affairs and leads the company’s public education programme

THE BLOG

Many Help to Buy Hopefuls Are Ill-Prepared for the Scheme

31/01/2014 10:14 GMT
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Updated
01/04/2014 10:59 BST

Over the past few months there has been a lot in the media about the government's Help to Buy scheme, the new initiative that allows people to get a mortgage with as little as a 5% deposit.

Help to Buy is bringing homeownership to within touching distance for thousands of younger buyers earlier than they may have thought possible. But it's important to remember that the deposit is just part of the equation and consideration must be given to how much you can afford to borrow - and crucially repay in the years to come.

We recently looked into this scheme at Experian CreditExpert, particularly around how well-prepared people were for it. We found that almost two fifths (39%) of 20 to 40-year-olds are planning to apply to the scheme this year, but unfortunately many are still woefully ill-prepared.

For example, just two fifths of Help to Buy Hopefuls (40%) are registered to the electoral roll at their current address - something that can be a key factor not only in passing the initial identity verification checks but also in ensuring your credit report is accurate as possible.

Furthermore, the insight report also found that a quarter of would-be Help to Buy applicants have never reviewed their own credit report and 7% have not saved for a deposit. In fact, more than a quarter (26%) has saved less than the £5,000 required to partake in the Help to Buy scheme.

A larger loan means lenders will take a close look at your ability to repay and a large factor in that will be based on your credit history. Therefore it is shocking to see that one in seven of those looking to buy (14%) admit that they have been managing their credit accounts poorly in recent years.

Another 14% think that having a good credit history is less important for Help to Buy than for conventional mortgages - when the opposite is likely to be true.

Anyone looking to make the most of Help to Buy would therefore be well advised to check their credit report to better understand their credit history, and ask for help if needed to ensure your credit report paints the best possible picture - before you make your application.

Hopefuls should also note that in the short term, future applications for credit could be negatively impacted as lenders may want to see how well you are repaying your current credit commitments before offering you any more credit. Take this into account in your financial planning for the year ahead and, where possible, give the mortgage time to mature before making any future applications.

I've put together some simple tips from Experian CreditExpert to help you prepare for a mortgage application in 2014:

1. Understand what is on your credit report before you meet any lenders. Is everything accurate and up-to-date? Pay attention to addresses, whether you're listed as being on the Electoral Roll at your current address, financial associations which are no longer relevant and or outstanding accounts that should be marked as settled.

2. Does your Experian Credit Score need work? The Experian Credit Score is a guide, to help you understand your credit report, how past credit management can impact on future credit applications and for you to monitor your progress as you get your finances in order before you apply.

3. Shopping around? Decide what kind of mortgage you want, how much you can afford and compare products you are likely to qualify for. Experian CreditExpert matches your credit profile to the best deals you are most likely to be accepted for. Only when you've found the best deal should you ask for an agreement in principle.

4. Do you want a quote or an agreement in principle? A quote will tell you what mortgage rate you're likely to get and what your repayments would be but do not require a full credit check. An agreement in principal will tell you if a lender will offer you a certain size of mortgage and is treated as an application and will leave a footprint on your credit file. Too many footprints could cause future lenders to be concerned you have been rejected for previous applications.

5. Remember your credit report is only one part of your application. Lenders also use the information provided on your application form and that they already hold on you (if you're applying through your bank, for example).